A Tale of Two Kingdoms: State-Level Political Determinants of Corporate Social Responsibility

Abstract

Objective: This research note explores the relationship between corporate social responsibility (CSR) and the political environment, focusing on the impact of state-level political determinants on Fortune 500 companies' CSR ratings. Method: We conduct OLS regression on 485 Fortune 500 companies’ 2020 CSRHub ratings, with standard errors clustered by state. Key independent variables include state partisanship and partisan control of state government, with controls for firm size, political activity, sector, region, and unionization. Results: Our analysis reveals a significant correlation between the political leaning of a company's home state and its CSR rating, with firms in states that favored President Biden exhibiting higher CSR ratings. Additionally, companies in states with divided government control tend to have higher CSR ratings, suggesting that a balanced political environment may encourage more robust CSR efforts. Finally, the study uncovers a relationship between corporate political activities, such as lobbying and political contributions, and CSR engagement, indicating that firms view CSR as a strategic element of their broader nonmarket strategies. Conclusion: These findings highlight the strategic role of CSR in corporations’ navigation of the political landscape, offering new insights into the motivations behind corporate social responsibility initiatives in today's politically charged environment.